Chron Energy reports:
The natural gas boom in the U.S. has weakened Russia’s influence on European energy supplies and could keep Iran’s influence in check for years to come, according to a new study from the Baker Institute for Public Policy at Rice University.
The study, “Shale Gas and U.S. National Security,” says the surge of drilling in shale formations will have an impact on global supply for years to come and limit the need for the U.S. to import liquefied natural gas, or LNG, for at least 20 to 30 years.
That means more LNG shipments from the Middle East will be available for Europe, which has been beholden to Russia for a large portion of its gas, supplied by pipelines.
Humiliation in Bulgaria
Last week little Bulgaria, whose citizens live far longer than “mighty” Russians on average, poked a finger right in Russia’s eye. It told the Russians it was no longer interested in hosting a pipeline to Europe, specifically Greece.
There were two truly devastating implications from this action.
The indispensable Paul Goble reports:
Moscow’s excessive reliance on profits from the export of oil and gas — the centerpiece of Vladimir Putin’s policies – has been contributing to a significant decline in the standard of living of most Russians beyond the capital’s ring road even as it has boosted the country’s GDP, according to a UN report on “Energy and Stable Development.”
As a result, Nataliya Zubarevich, a geographer at Moscow State University who helped prepare the report says, “there is oil and gas [in Russia] but no happiness,” at least outside Moscow, the oil and gas producing regions of Khanty-Mansiisk and Yamalo-Nenets, and the processing center in Tyumen. Because the Russian government has “incorrectly” relied on oil and gas profits alone to show economic growth, she continues, there has been a decline in the well-being of Russian citizens, not only in terms of income but also in health, education and other social services.
Indeed, the report points out, in order to support oil and gas exports, Russia has to spend nearly five percent of its GDP to support the oil and gas infrastructure, an amount that severely limits Moscow’s ability to invest in the modernization of the country and that will largely preclude it as the cost of drilling increases and Russia’s production of oil and gas declines. In an interview with Svobodnaya Pressa, Zubarevich added that the sale of oil and gas abroad had helped Russia but that the way in which these profits were used now constitutes “a very serious break on development,” one that she suggests will only become worse if Moscow doesn’t change course.
Russia, Running Dry
According to a stunning, nearly 200-page analytical report released last week by the United Nations (see page 24):
The threat of depletion of Russia’s proven and accessible oil resources in 20-30 years time has become a real threat, mainly because of inadequate exploration in the past decade and more difficult extraction conditions, which require work in remote regions with harsh climate. Even during the recent boom years (2002–2008) the depletion date came nearer (from 26.3 to 21.9 years) (Figure 1.8). Reserve replacement is progressing very slowly and the crisis has clearly worsened the situation.
The situation with natural gas reserves is better, mainly due to huge deposits, which are sufficient for 70 years of production. But the expected depletion date for natural gas has moved closer by 9.4 years in the last decade, canceling out reserve replacement.
You read that right: Within this century, Russia is likely to totally exhaust its reserves of both gas and oil. Crude oil, by far more important to Russia in terms of generating essential foreign exchange, may be entirely gone as soon as 2030.
Let’s repeat that: Within two decades, three at the most, there will be no more crude oil for Russia to sell abroad unless new sources are found or the current rate of is drastically curtailed. Within one generation, Russia’s gas resources may also disappear (if the last decade’s trend continues in the next, Russia’s gas will likely exhaust in 2070). Russia’s hard currency reserves, before this century is out, will rapidly dwindle to nothing, the value of the ruble will plummet, the stock market will collapse and the price of imported goods will soar far beyond the means of ordinary people, an apocalypse in a country which produces virtually no worthy consumer products of its own.
The reason is simple: Russia is guzzling oil and gas in a pathological manner because its industry is profligately wasteful and the climate demands extreme consumption which the Kremlin must vastly subsidize since it rules an impoverished population. And Russia is selling oil abroad at a frenzied rate in order to bolster its flagging domestic economy and to fund the savage cold-war aggression of the KGB Kremlin. By contrast, Russia is failing to invest energy proceeds in development of new energy assets, squandering them instead on cold-war politics. This wicked one-two punch to the nation’s economic solar plexus will soon bring the national economy to its knees.
Ukraine suckers Russia, but Good!
Last week, Ukraine’s new president Victor Yanukovich sold a piece of his country to Putin’s Russia in exchange for wildly reduced prices on natural gas.
Specifically, Yanukovich renewed Russia’s lease on its naval base on the Black Sea at Sevastopol from 2017 to 2042. For Yanukovich, it was the deal of the century. For Russian “president” Dima Medvedev, it was yet another amazing sucker move.
The irony in light of our lead editorial in this issue is palpable: Russia is running out of gas rapidly, yet it is going to send a flow of cheap energy to Ukraine indefinitely in order to secure a naval base which offers Russia absolutely no strategic value, since the Russian “navy” is a mere figment of the Kremlin’s imagination, in reality nothing more than rusty, creaking bucket of bolts.
Streetwise Professor reports:
A recent FT had a fascinating article on Gazprom. Many of the company’s challenges are well known: declining production, reduced demand in Europe, increased world supplies, pressure on its traditional pricing mechanism. What makes the FT article particularly interesting is its extended discussion of the internal domestic challenges to the company’s dominance. Challenges led by your fave and mine, Igor Sechin. (If, as the one State Department intelligence guy told me, Lavrov is fascinating in the same way a tarantula is fascinating, in what way is Sechin fascinating? One shudders at the thought.)
The Putin Economy in Shambles
We learned last week that merger and acquisition activity in Russia fell a shocking 62% last year. Activity in the areas of consumer goods and retail, financial services and metals and mining was even worse, down a devastating 80%. Investors spurned Russian risk with a furious vengeance, and for this same reason the Russian stock market’s value remains utterly puny compared to the theoretical value of the assets it represents.
The world, you see Mr. Putin, is getting wise to you.